Technology as a business tool helps the battered financial sector make better use of data in order to reduce operating costs and increase revenue.

A U.S.-based bank seeks a better way to predict customer behavior. An international bank looks to an IT solution to help manage its mergers and acquisitions. A credit-card company must reduce its exposure to risk, while a Wall Street options exchange simply has a need for speed.

Such developments are key indicators of what finance-sector companies are seeking in IT solutions. Battered by what’s been described as the harshest economic downturn since the Great Depression, these enterprises must make better use of data to slash operating costs and increase revenue. And they’re willing to invest to do so.

Despite the uncertainty of a double-dip recession, enterprise-IT spending in the financial-services sector worldwide will increase this year to $554.6 billion, from $531.4 billion in 2009, according to industry researcher Gartner, based in Stamford, Conn. In 2008, spending hit $565 billion, so there’s clearly room to grow when the economy improves.

Gartner expects software as a service (SaaS), cost-optimization and risk management/compliance solutions to emerge as key drivers in the demand for tech products. “We’re seeing a moderate recovery in 2010,” says Susan Cournoyer, managing vice president of technology and service-provider research at Gartner, “but we expect a strong recovery beyond that.”

Julien Courbe, a principal at the financial services advisory practice at New York-based industry consultancy PricewaterhouseCoopers, agrees that IT spending in the financial services sector is cautiously rising, and adds that there are many promising high-growth niches. Retail banks and insurers, for example, are projecting a 50 percent to 100 percent increase in online users during the next two years, and demand will be high for solutions to serve these customers.

“There is a great deal of focus on the development of the online-revenue channel,” Courbe says. “But banks, insurers and asset managers continue to struggle with profitability, and are also looking for ways to intelligently reduce costs and, at the same time, develop new revenue streams. Customer relationship management solutions can help meet those goals. CRM is seen as a way to help customers better protect investments and returns while still gaining a greater ‘share of wallet’ among existing customers.”

Baseline recently spoke with four enterprises in the banking/finance industry that are benefiting from IT solutions. In all four cases, the companies are looking for a better way to use or manage data. Yet each case presents its own distinct story about how IT can provide these services.

Tapping Into CRM

In the banking industry, “upselling” and “cross-selling” programs are where the money is made. A person who walks into a branch to deposit a week’s paycheck is a good customer, but a walk-in who deposits a week’s paycheck into a certificate of deposit (CD) is even more valued.

To gain better predictive insight into its customers, Memphis-based First Tennessee Bank sought an advanced CRM tool to save on marketing costs and time by distinguishing the customer niches that are likely upsells. For years, First Tennessee had relatively little data about this.

“We’d know how much business customers were doing with us,” says Tanner Mueller, who manages the marketing database for First Tennessee, which oversees more than $20 billion in assets. “And we’d know, for example, whether they were customers who only had a checking account. That made them a good candidate for a savings account. We’d know if they had a CD about to mature, because that would make them a good candidate for a new CD. But it really wasn’t a lot of demographic data to work with.”

That’s when First Tennessee deployed IBM’s SPSS predictive-analytics solution, which enables the bank to consider more than 125 sources of information. This includes external data, such as fluctuations in the Federal Reserve interest rate, along with a wealth of internal data about customers, including income, occupation and even the publications they’re likely to read. Using this broader breakout, the bank’s ROI on a number of key cross-sell campaigns increased by 600 percent.